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The Actuary The magazine of the Institute & Faculty of Actuaries

Compulsory pensions

Many years ago Sir Keith Joseph introduced legislation which, if it had been implemented, would have introduced compulsory pensions. Because Edward Heath lost the critical election and the incoming Labour government refused to implement the legislation, the experiment was never tested. I had a particular interest because I had provided the original blueprint to Sir Keith when I was at Noble Lowndes.

I suggest there are two potential snags – the first is that for the lower paid – those earning less than £20,000pa – any pension benefit resulting from compulsory saving, paid for by the employer or employee, will be negated by the means-testing conditions for the benefits likely to be payable to such lower paid.

The second is longer term. What will the contributions be invested in – government securities; shares; property; overseas? Which of these is likely to lead to the increased productivity essential if the burden of increasing age-related pensions is to be met?

If it is government securities then such an increase seems unlikely, while if it is shares and/or property, in due course the size of the fund is likely to be such that it will dominate the market. I wonder what any government would have done regarding a bear market like the recent one if it had held a dominant part of the relative shares?